Real Matters Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Real Matters' first quarter 2021 conference call. At this time, all participants are in a listen-only mode. After the speaker's remarks, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. If you wish to remove yourself from the queue, please press the pound key. If you require any further assistance, please press star 0. Thank you. I would now like to hand the conference over to your host, Ms. Lynn Beauregard, Vice President of Investor Relations. Ma'am, the floor is yours.

Thank you, Operator, and good morning, everyone. Welcome to RealMatters Financial Results Conference call for the first quarter ended December 31, 2020. With me today are RealMatters Chief Executive Officer Brian Lang and Chief Financial Officer Bill Herman. This morning before market open, we issued a news release announcing our Q1 results for the three months ended December 31st, 2020. The release accompanying slide presentation, as well as the financial statements and NDNA are posted in the investor section of our website at realmatters.com. During the call, we may make certain forward-looking statements which reflect the current expectations of management with respect to our business and the industry in which we operate. However, there are a number of risks, uncertainties and other factors that could cause our results to differ materially from our expectations. Please see the slide entitled Cautionary Note regarding forward-looking information in the accompanying slide presentation for more detail. You can also find additional information about these risks in the risk factors section of the company's annual information form for the year ended September 30th, 2020, which is available on CDAR and in the investor section of our website. As a reminder, we refer to non-GAAP measures in our slide presentation, including net revenue, net revenue margins, adjusted EBITDA, and adjusted EBITDA margins. Non-GAAP measures are described in our MDMA for the three months ended December 31st, 2020, where you will also find reconciliations to the nearest IFRS measures. With that, I'll turn the call over to Brian.

Thank you, Lynn. Good morning, everyone, and thank you for joining us on the call. I will kick things off today by discussing some of the highlights of our first quarter. Bill will then take a deeper dive into our segment financials, and I'll wrap up the call with some brief remarks prior to taking questions. Turning to slide three, we delivered solid financial results in the first quarter. Consolidated net revenue increased 24.8% year-over-year to $44 million, and adjusted EBITDA was up 19.7% to $17.4 million. And for the third quarter running, the contribution to net revenue and adjusted EBITDA of our U.S. title segment surpassed that of our U.S. appraisal segment. The U.S. mortgage origination market remained robust in the first quarter as low interest rates continue to provide a tailwind to market growth. These market dynamics provide a healthy backdrop for our growth, and we realized solid year-over-year market share gains in U.S. appraisal and even stronger gains in our U.S. title segments. U.S. appraisal segment revenues increased 3.2% year-over-year to $69.6 million, principally driven by market share gains and new client additions, which together drove higher origination revenues. The increase in origination revenues was offset in part by a 37.1% decline in other revenues, which represent home equity and default transactions. Origination-only revenues were up 9.2% year over year relative to what we estimate was a flat addressable market for appraisals, which takes into account the impact of VA and waivers. In the quarter, we launched one new Tier 2 lender in two channels in U.S. appraisal. We also continue to rank at the top of lender scorecards, which drove market share gains in the main origination channel year over year. In fact, in the first quarter, we marked our third straight year as the top performer with one of our tier one clients. Operational excellence continues to be our principal focus as we drive toward achieving our fiscal 2025 objectives of doubling our U.S. appraisal purchase and refinance market share at the midpoint of the range. In our U.S. title segment, first quarter revenues rose 39% year over year. Growth in our centralized title operations continued to significantly outpace the market, with revenues increasing nearly 93% compared to an estimated 60% increase in refinance market volumes. The significant increase in centralized title revenues was partially offset by a $4.1 million decline in diversified title revenues and a $2.1 million decline in other title revenues representing home equity and real estate-owned transactions. With new client launches in our centralized title business on the horizon, We've shifted resources away from our diversified title operations with a view of supporting our long-term growth strategy in the origination channel. In the quarter, we went live with two new clients, including a Tier 2 lender, and our sales pipeline continues to be strong. As we indicated during our last quarterly call, we are actively engaged in a sales process with the majority of the Tier 1s on title today, and we remain confident that these engagements will result in our first Tier 1 lender launch. In our Canadian segment, first quarter revenues were up 40.7% year over year, and adjusted EBITDA increased to $1.2 million from $0.7 million in the first quarter of fiscal 2020. Higher appraisal volumes from increasing market share with certain Canadian clients and a stronger mortgage origination market in Canada were partially offset by modestly lower revenues from insurance inspection services due to COVID-19. Canadian mortgage market continues to be remarkably resilient. With that, I'll hand it over to Bill. Bill?

Thank you, Brian, and good morning, everybody. Turning to slides four and five for a closer look at our financial results. Consolidated revenues were up 15.9% in the first quarter of fiscal 2021 compared to the same quarter last year due to significant revenue growth in our U.S. title segment and continued growth in Canadian and U.S. appraisal segment revenues. Revenues in our U.S. title segment were up 39%. while revenues in our U.S. appraisal segment increased 3.2%, and Canadian segment revenues rose 40.7%, each expressed on a comparative basis. In our U.S. appraisal segment, we serviced higher origination volumes from market share gains and new client additions. Conversely, revenues related to home equity and default volumes declined year over year. Transaction costs in our U.S. appraisal segment increased 3.8% year-over-year, compared to the 3.2% increase in revenues for the same period. As a result, net revenue was up 1.4% to $15.7 million. However, net revenue margins declined 40 basis points to 22.6% in the first quarter of fiscal 2021 from the 23% we posted in the first quarter of fiscal 2020. due in part to the mix of mortgage origination volume service, and we continued to build capacity and strengthen the network in anticipation of volume growth in the second half of fiscal 2021. Operating expenses in our U.S. appraisal segment increased 3.5% to $6.9 million, up from $6.7 million in the first quarter of fiscal 2020 due to higher payroll and related costs from higher origination volume service. As a result, adjusted EBITDA was flat with the first quarter of 2020. Adjusted EBITDA margins in our U.S. appraisal segment decreased to 56.3% in the first quarter of fiscal 2021 from the 57.2% we posted in the same quarter last year. Turning to our U.S. title segment, first quarter revenues were up 39% year over year, while transaction costs increased 29.3% leading to net revenue margin expansion of 250 basis points. The expansion in net revenue margins was due to the flow of volumes in the first quarter, which saw us close more transactions than we received in new orders. Transaction costs attributable to mortgage origination orders are typically incurred 45 days in advance of recognizing revenues. Accordingly, there is a lag between when we record transaction costs and when we recognize revenue. As expected, new refinance orders in the month of December, for example, were lower than October and November due to the holidays. As such, net revenue margins improved as the number of orders we completed and recognized revenues for were proportionally higher than the new orders received in the quarter. Looking ahead, we anticipate the launch of a number of new title plans in the second quarter of fiscal 2021. Accordingly, we expect to incur transaction costs attributable to orders from these new clients in the latter half of the second quarter that will convert to revenue in the third quarter of fiscal 2021. As Brian mentioned earlier, centralized U.S. title segment revenues nearly doubled to $36.2 million from $18.8 million in the first quarter of fiscal 2020. Diversified revenues decreased 63.2% to 2.4 million as a result of planned initiatives to focus on large, centralized U.S. title clients, and other title revenues were down 59.9% to 1.4 million, representing lower home equity activity. As we outlined during our last quarterly call, over the course of fiscal 2020, we made the strategic decision to streamline some of our diversified title operations due to the growth in our centralized title business. To that end, we exited the commercial business and unwound our title-only and search operations, and we allocated these diversified title resources to our centralized title operations to support a larger, long-term strategic growth opportunity for the company. Operating expenses in our U.S. title segment increased $5.1 million to $15.1 million in the first quarter of fiscal 2021. In the quarter, we continued to build capacity in this segment and rationalized our customer base to make room for a Tier 1 lunch. This capacity build will result in a further increase in title operating expense in the second quarter this year. While it is often difficult for us to dictate when new client launches will occur, we are confident in the timing and scale of our investment. Adjusted EBITDA increased to $11.6 million in the first quarter of fiscal 2021, up from the $8.4 million we posted in the same quarter last year. However, adjusted EBITDA margins declined 220 basis points to 43.5%, as a result of our ongoing investment to build capacity for growth in our U.S. title business. We remain confident in our ability to achieve adjusted EBITDA margins of 50% to 55% by fiscal 2025. In Canada, revenues increased 40.7% on a year-over-year basis to 10.8 million, while net revenue margins contracted by 190 basis points due to a reduction in insurance inspection services as a result of COVID-19 and the mix of mortgage origination volumes serviced. Canadian segment operating expenses were 0.4 million in the first quarter, down 26.9% from the first quarter of fiscal 2020, and adjusted EBITDA margins increased to 73.7% from 55% in the same quarter last year as we leveraged our appraisal operations in a higher overall volume environment and incurred modestly lower travel and entertainment expense due to COVID-19. In total, first quarter consolidated net revenue increased 24.8% to $44 million, up from the $35.3 million reported in the first quarter of fiscal 2020. And consolidated net revenue margins increased to 36.6% in the first quarter of fiscal 2021, up from 34% in the first quarter of fiscal 2020, due in large part to the contributions made by our U.S. title business. As a result of our solid operating performance, consolidated adjusted EBITDA rose to 17.4 million in the first quarter of fiscal 2021, from 14.5 million in the same quarter last year. And consolidated adjusted EBITDA margins decreased to 39.6% in the first quarter of fiscal 2021 versus the 41.2% we posted in the first quarter of fiscal 2020 due to the capacity investments we made in both our U.S. title and U.S. appraisal segments this quarter to service higher volumes in Q1 and in anticipation of higher volumes in the second half of the year. These investments were partially offset by lower travel and entertainment expense as a result of COVID-19. Turning to the balance sheet, we ended the quarter with cash and cash equivalents of $118.6 million, down from $129.2 million at September 30, 2020. Cash from operations of $7.3 million was offset by capex of $2.3 million related to the opening of two new title offices in Dallas and Phoenix. As we continue to scale our title business, we are making the necessary investments to support our growing footprint and expanding the breadth of our operations to meet clients and regulatory requirements. We also continue to purchase shares under our normal course issuer bid, purchasing approximately 1.2 million shares at a cost of about 18.9 million in the first quarter of fiscal 2021. Post-quarter end, we purchased over 90,000 additional shares, With that, I'll turn it back over to Brian. Brian?

Thanks, Bill. Overall, we were very pleased with how the business performed in the first quarter, making it a solid start to the year in a traditionally seasonally lower quarter. While our U.S. title segment benefited from U.S. mortgage market tailwinds in the first quarter, more importantly, we continue to make progress with market share in appraisal and title, and we are investing in our business, laying the foundation for future growth. As Bill mentioned, we are continuing to build title capacity in Q2 while rationalizing our customer base to make room for at least one Tier 1 launch. We're making the right decisions today for the long term, and we remain confident in our ability to convert at least one large tier one lead client in title this year. We believe that the market surge for refinance activity will continue. We remain focused, however, on driving market share through operational performance and scale to build value over the long term. I'd like to thank our team and the field professionals on our network for helping us deliver solid results this quarter

especially during the holidays with that operator we'd like to open it up now for questions thank you sir at this time i would like to remind everyone in order to ask a question please press star then the number one on your telephone keypad again that's star then the number one on your telephone keypad if you would like to avoid your question you can press the pound key Presenters, your first question will come from the line of Mr. Richard Tse from National Bank Financial. So your line is now live. Go ahead, please.

Yes, thank you. Guys, I was just wondering if you could maybe talk about the trajectory of the appraisal business for the remainder of the year. I'm expecting that you're still going to see some growth, but maybe you can kind of give us an update on that.

Yeah, so you know seasonality, Richard, is playing into things. And so our view is we're going to go into that spring and summer market, and much as we sort of forecasted out in the year, we believe that we will see some good upramp in Q3 and Q4. Q2 will continue to sort of plug away, but I think we'll actually see that upramp Q3, Q4. Okay.

Okay. And then I guess one of the challenges is that there are a number of different items within this appraisal segment. For sure, you called out home equity and default. Can you give us maybe a bit more color or some finer detail on the market share gains you are having in appraisals?

Sure. So the majority of our Tier 1s in this past quarter, we increased market share with. So we are continuing to see through operational excellence. I mentioned that we celebrated our third year being top of the scorecard with one of our Tier 1s. So we continue to see the fruits of that labor. and and so that was that was a very good quarter that we just had as far as continuing to build market share with those tier ones i also mentioned richard that we launched a new tier two into two different channels so that is at the very front edge of course of um of volume but we expect to continue to see some growth and market share gaining uh with that new tier two

one of the things that we've uh we expressed i think on the call and it's in our mdna as well is just to give you some perspective on how we've done relative to the market so when we look at the addressable market in our appraisal business our view is that it was really flat uh year over year But when you look at those origination revenues and isolation, they increased over 9%. So I think that's a pretty decent proxy for, you know, our volume growth and our market share gains on the quarter. There really was no meaningful price change quarter to quarter as it relates to the average price of an appraisal, be it refinance or purchase. So it's really, that's a good proxy for our volume gains quarter of a quarter or year over year, I'll just say.

Okay. And just sort of on that point, would you guys ever consider segmenting that sort of information on those other lines of businesses within appraisals going forward, just because it obviously kind of distorts the results of the sort of pure business that you have right now. Is that something you would consider going forward?

Joe, I'm going to hand that over to you. Absolutely. So we certainly lay down the difference in revenues and and we have uh done so since uh since the end of last year richard so you're going to continue to see at least the bifurcation so you can you can see how the home equity uh you know portion of our business relative to the main larger origination channel is behaving and when we're giving our market estimates we're obviously focused on the origination channel principally we obviously gravitated away from a total market view where we included home equity and default transactions really just focused and isolating on on the main origination channel and those are aligned with our 2025 strategic long-term targets as well so i think that sets up well for at least you know understanding the business uh and and where we're focused on and where we intended to go i don't think i would ever see us taking home equity and actually subdividing it in our appraisal segment down to net revenue and ebitda but we certainly give some color at the revenue line so for that's helpful

Okay, and just one last quick one for me. Obviously, the business is shifting increasingly more towards the title, and it sounds like you guys have quite a bit of activity on a tier one. So the question is, once you bring on one of these tier ones, does it sort of typically take a quarter to scale these up, much like you referred to in your text today, but those aren't tier ones? What's sort of the timeline to scale up the tier ones?

Good question, Richard. So, listen, our expectations on the Tier 1 that we're in discussions with are probably a little more aggressive than we've talked to you in the past, and I think that's mainly because we've got and built up this sort of performance equity on the appraisal side. So, as opposed to it taking some time, a quarter or two, for us to actually start seeing a decent amount of volume, our feeling is that, and our Our planning is around us taking on a much better chunk of volume, so a decent amount of market share from the get-go. So we have expectations that we'll take on some good volume from the Tier 1 in the second half of this quarter.

That's great.

Thanks, guys.

Thank you, Richard. Your next question will come from the line of Mr. Daniel Chen from TD Securities. So your line is now live. Go ahead, please.

Thanks. So you mentioned that you have discussions going with the majority of the Tier 1s. Can you just give us some color on the timing of those and how far along you are in those discussions?

Sure, Daniel, I think we look at this very similarly to our appraisal experience. So if we fall back on that, it was 18 months plus, give or take a month, so call it 18 to 24 months from the signing of the first contract with the Tier 1 until we had all six of the Tier 1s in contract. Our view is similar with the title business. We feel that the progress on the sales pipeline sets us up for that same type of dynamic.

But we should expect steady tier one wins throughout that 18-month period, right?

Correct.

Correct. And then on the waivers that you guys started talking about last quarter, any change on the percentage of appraisals that need to be waived?

No, it's a very similar quarter this quarter as we had sort of suggested and forecasted last quarter. What's going to happen now as we go forward is the waiver rates, the average waiver rate will come down simply because of mix. So remember that the waiver rates on rate refinance, as the market shifts, purchase starts coming up, cash out refi comes on board, we believe that the waivers will slowly start making their way down.

Okay. And the last one for me, you introduced your data strategy at the annual stage. Just wondering what the pipeline of acquisitions is looking like for you to acquire into that data strategy. Thanks.

Yeah, not much of an update there, Daniel. We continue to look at opportunities in the market, but nothing has progressed worth conversation here.

Thank you, Sam. Your next question will come from the line of Athanas Moschopoulos from BMO Capital Markets. Your line is now live, so go ahead, please.

Hi, good morning. As we think about your market share gains and appraisal through the rest of the year, are there any mitigating factors we should think about, be it in terms of what you're seeing as far as the type of share gains that your own customers are likely to capture? as far as the overall market or be it with respect to the purchase refi mix in the industry? Anything you'd call out as we think about share gains?

I think it's still early to make a call on that, Thanos, as I think we've talked about in the past with regards to refinance. Often some of the non-banks will get going and take some share early when there's a refinance event. And so I think there may have been a little bit of that early, but I think some of the big tier ones now, you're seeing some good growth there, definitely very competitive on the rates. So we think that that will continue to evolve, but definitely we're feeling very confident in some of the big tier ones. making sure that they are continuing to take their fair share of market share. So I think that's how we would look at it going forward. And the purchase-refi mix, I think we told you, we have been heavier on the refi mix. A bunch of that is driven by just the customer mix. So some of our big players are very refi-focused. And that's generally, not surprisingly, a non-bank like Quicken. And so some of our tier ones are quite focused on purchase. So as we move into the purchase cycle, we think that they will fare very well.

And with respect to your expectations of waiver activity coming down later this year, is that primarily a mixed dynamic or might there be other factors that you're anticipating in terms of be it the GFC participation in the overall market or be it in terms of

gsc waiver behavior within you know um refi versus purchase yeah so refi that's for me anyways part of the mix piece so i just uh the the waiver rate on purchase is quite a bit less than it is on um on refi rate and same with cash out so there's a mixed piece so i think that will just evolve especially as we head into the spring and summer markets As far as GSEs, we've talked a little bit around the fact that there's a sort of cohort of identified mortgage holders that we believe will find their way through the pipeline, and so hence why we've talked about in the second half of the year starting to see that overall sort of waiver rate start finding its way down.

Sorry to clarify, would you expect that the GFC level of waivers, say, within refi, I think they're waiving something like active ratios now, but would you expect that their waiver activity within, let's say, refi would come down, or do you think that remains constant?

But the deal probably makes issues. We think over time, Thanos, we think over time that that cohort that we talk about, the 720 credit score, the recent appraisal, good LTV, that whole group, we believe that will find its way through the funnel. So we've talked about in the second half seeing that actual rate refinance waiver rate slowly start making its way down. We plan for a very slow decrease, but I think we might see a little bit more of a decrease just with the mix. coming in with purchase starting to ramp up in the spring.

And then finally, what are you seeing as far as lender capacity? Are they growing their processing capability to the extent that you have been anticipating?

Yeah, they're getting there, I think, from our standpoint. And you're seeing it, I think, in the margins. You're seeing the margins from the 10-year and 30-year come down. You've seen the rates come down dramatically, of course. So they're now starting to compete more for the business, which That's, I think, a decent proxy for them definitely having more capacity. If you look at the labor rates, it's a slightly sort of staticky story. It's not a significant growth in capacity. But from what we're seeing in the market, the market dynamics would tell us that they're getting good. They're getting close to where we would expect capacity to get to. Great. Thanks for that, Pauline.

Thank you, sir. Your next question will come from the line of Paul Steep from Scotia Capital. So your line is now live. Go ahead, please.

Great, thanks. Could you comment maybe just a little bit about the trend in diversified title revenue and put it in context of your comments from the MD&A regarding maybe reallocating resources, respecting that you're ramping for your tier one clients later in the year? Should we read that to mean basically that those revenues are basically going to approach zero, you've exited the market, or is it going to sustain? That'd be the first part.

Sure. So, Paul, Diversified Title, it's a less scalable business than our centralized title business. So, as we saw the refinance wave start picking up, we took a look at a portion of our Diversified Title business that was very relevant to decentralized title business as far as capabilities go. And so we then decided it made sense for us to start streamlining that part of our business and move it in to support centralized title. So that was the commercial side of the business. And so as of this past quarter, we have shut down that portion of diversified title. We are still running our capital markets piece of the business, and that continues to perform. But that's sort of our view. So that business will continue going forward. So expect that there will be capital markets revenue coming in. Capital markets have been a little bit soft. So we'd like to see that be a little healthier, that portion of the business. But that's currently the way we're looking at it. So commercial has been closed down. Those resources have been put into the centralized title business. And we'll continue to run the capital markets portion of the business.

That's helpful. So just to be clear on it, the 2.4 this quarter, that's just pure capital markets. And so there's no real trailing amount, not that it's material.

It would be immaterial, the commercial revenue there.

So then... The second part of that, and it's to the comments you made in the MD&A and in the prepared text, just regarding the cost, right? It sounds like you shifted resources. It wasn't clear whether you added new resources and whether those resources were all in for a full quarter. I guess where I'm going with this is I'm trying to reconcile your comments about you're adding expense into the next quarter in advance. How much should we think it grew in terms of, you know, Is this a decent baseline, or is it going to materially move higher? Thanks.

No problem. So we've been growing our costs. We started talking about building up the capacity, capacity in two areas. One, of course, is building out our network, so onboarding more notaries and abstractors in preparation for more volume, as well as onboarding resources to support things like like search and in curative so we've been hiring Paul I think we've been pretty clear and actually given numbers on on folks that we've been hiring so we definitely bringing folks in as well as that transition that we mentioned around some of the DT resources onto the onto the centralized title business so we building people as well as investing in the network and making sure that we're out-attracting and bringing up the network. So that is, I think, the way we would look at it. Did I answer your question? I apologize. Is there a second part to your question?

Just all we're trying to do is just sort of level set, you know, whether or not you've got a full quarter of the cost and how significantly. And I was just referring to OpEx, so sure. Sure.

Yeah, so we'll continue. I mean, I can turn that over to Bill for maybe a little more color around OpEx, but we're going to continue to scale that business up in this quarter with that expectation of volume in the second half, increasing volume. But, Bill, I'll let you comment on OpEx.

Sure. Thanks, Paul. Great question. I think what you're going to continue to see, and it's really just an echo in Brian's comments, is that we are going to continue to – to build that capacity up with the expectation of that volume coming especially in q3 and q4 converting into revenues your question really is you know we posted a 15.1 million dollar office in our title business that was up roughly 1.6 million sequentially over the Q4 period. The ultimate, I think, what you're asking is are we going to see another 1.5 or 1.6? The short answer is it's probably not going to be that significant, but I would certainly expect it to have a slight further increase off of the 15.1 level you saw in Q1. Thanks, Bill. You're welcome.

Thank you. And at this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Your next question will come from the line of Mr. Rob Young from Canaccord, Germany. So your line is now live. Go ahead, please.

Hi, good morning. If you look back to the investor day, is the waiver volume that you're seeing, is that playing out relatively consistent with your view then? Is there any change in scope of where the waivers are being applied or is there any change in the volume as you expected it?

Yeah, I mean, I think we've stated, Rob, the waiver rate was a little higher than we'd expected, but we had built waivers and a pretty healthy waiver rate into the overall plan. So, I mean, the plan has that in place. It has it slowly starting to track down in the back half of this year. And as we've mentioned before, it makes its way back down to 2019 rates by 2025. The reality is, of course, with the mix of the business changing over time as rate refi becomes, over time, a smaller part of the overall mix. That, of course, will become less relevant in the back couple of years of the plan.

Okay, and that's being driven by two factors. As you're heading to the spring market, there's more purchase volume, and the underwriting capacity where it's at, you're expecting it'll shift more towards the Tier 1s, which would seem less wavering, or at least in the composition of your revenue. Is that a good way to summarize that?

Yeah, so the overall mix of the market will definitely start moving more towards purchase simply because of the dynamics of seasonality kicking in. so you're going to get that and purchase has a very low waiver rate it's somewhere in five to six percent right now historically more like two to three so that will of course just generally change the overall average of the waiver rate so that's I think in the short term and then longer term Rob we've talked about the cohort that we think goes through this

and the requirement for data all the other elements around the gsvs we think will start that track down in the second half okay and then um going into the spring market where the the volumes are expected to to increase if lender underwriting is that you know very high capacity levels right now should we expect a normal seasonal uptick or will it be limited by lender capacity

I think we'll have to see. Our expectation is that we will have a strong spring market. The analysts out on the street have been talking about the U.S. market having a strong spring and summer. So our view is the overall purchase market should be pretty solid. comment earlier around I think the capacity is pretty good at the lenders. It may not be exactly where we would have liked it to be, but it's definitely much better than it was last year at this time. So the comment, Rob, is I think the purchase market will be strong. It's not much different, though, than the way we had forecasted it for Q3 and Q4. Okay.

And then when you're talking about the shifted headcount, that's likely a bit of a short-term revenue headwind. And also in Q2, the capacity increases that you're expecting. I think you suggested that you're expecting title volume to increase in the back end of Q2, where you would recognize the cost. And so Q2, you're going to see some top-line headwind, but also a strong tick-up in your expenses.

Yeah, so the top line is making room in the portfolio for the incoming Tier 1 volume. So there's a piece of that. There's another piece, Rob, which is I think the second point you were talking about, which is we had a very good margin in Q1 on title down to EBITDA, and we had a really good margin because we closed more orders than we opened, which is not unusual with December. And so in this upcoming quarter, we see that in the back half, we are preparing for that volume. To your point, we think we are going to open lots of orders in the back half and close those in Q3. And we take the cogs on those orders up front. So we've got that. And then you've layered on the piece, which is around capacity build. So we will continue to build up capacity. So that's where you will get some expenses in Q2. Okay.

Okay, and maybe just to put a little bit of a finer point there, I don't know if you said this earlier on the call, but with that capacity increase exiting Q2, is that related to, like, expectations on new customer wins, or is that just related to regular volume increase from seasonality?

No, that's very much focused on customer wins. That's almost 100% focused on customer wins.

Okay, great.

Expected customer wins.

Okay. And then last question from me would be, I mean, there's some complaints in the market around appraiser professional shortages. And are you seeing any impact on the capacity, especially, I guess the capacity increases are more on the title side, but are you seeing any impact on capacity on the appraiser side? And then I'll pass the line.

yeah no no we haven't and um we're quite fortunate that uh some of the the large lenders are actually warming up to the idea of uh including trainees as long as of course it's signed off by that certified appraiser so um our view right now rob is we're not seeing any shortages around that and uh we haven't had a problem finding and fulfilling orders

Thank you, sir. And that will be for our last question for today's conference. Again, thank you so much, presenters. Thank you, everyone, for participating. This concludes today's conference. You may now disconnect. Stay safe and have a lovely day.